This Spice Almost Lost Its Flavour

Richard Branson gave a classic example of how to become a millionaire – start as a billionaire and invest in an airline! Astonishingly accurate – Who, in India, would have believed him 3 years ago? But as more skeletons tumble out of the skies (or hangers?), a picture akin to a dreary, cold, foggy and damp winter morning, instantly comes to our mind. The reality is not far from the picture – as the winter intensified its grip over Delhi, it almost claimed another victim - the ‘spices’ airline. Spicejet had become afflicted with a dangerous respiratory ailment and the doctors tending to it (read Government, regulators etc.) had all but spelled the death knell.

Image source: www.alchemymarketingsite.com

Spicejet, till recently India’s second largest airline by passenger share, was hogging the headlines, albeit for the wrong reasons. The nightmare of Spicejet’s top bosses, who begged for mercy with the authorities, continued unabated. Along with it was hanging the fate of its crew, staff and associated entities. Spare a thought for their families. We cannot imagine their condition until we are in their shoes – a thought which sent shivers down my spine. The smiles on the faces of Spicejet’s cabin crew, which was so welcoming when I took my first flight with them in 2007, being a first timer on a low cost carrier (LCC), had perhaps been lost forever.

Spicejet, in its current avatar, started operations in May 2005. GoAir was launched later that year in November and Indigo in August the next year. The growth of Spicejet was phenomenal and together with Indigo, gave the full service airlines a run for their money. Their expansion in fleet and routes were also quite similar, with Spicejet marginally ahead for most of their first five years of existence. Fares were similar, with Spicejet giving more flexibility in booking options. While Indigo offered a hold booking for 24 hours, Spicejet offered a hold booking till 2300 hours next day irrespective of the booking time. With the triumphant twosome, low cost airlines had arrived big time in India, giving enormous edge to the gleeful general public.

However financially, Spicejet was slowly losing the plot. After making profits in the financial year 2009-10 and 2010-11, it was in losses in 2011-12 before returning to profit in 2012-13. This change in trend was due to further investment by its then owner, Sun Group. On a straight comparison, Indigo was posting profits without a break since 2008-09. History, unfortunately, was being repeated for Spicejet. The issues relating to frequent change of hands of owners had grounded the airline in 1996, then known as Modiluft. In its second stint, Ajay Singh, who re-started operations, exited and so did Wilbur Ross and Bhulo Kansagra, Spicejet’s other investors. Spicejet is the only airline, which did not have a focused owner all throughout its life.

Was Spicejet a victim of its own actions or did it suffer from the hapless fallout of the restrictive Indian airline industry or was it a doomed cause? Let us take a look at some instances of the other failed low cost airlines globally.

In the United States, a generation after deregulation of airlines in 1978, low-cost carriers have seized control of the domestic market. It was not always thus. Of the 34 newcomers created after deregulation, 32 soon went bust. Those were the days when the strong, incumbent firms such as American Airlines could simply unleash even lower fares whenever a low-cost upstart invaded its market. Before the antitrust authorities could do anything about it, the competitor was crushed.

 
Similarly in Europe, as many as 60 low cost carriers were forced to exit the market between 2003 and 2010. The low-cost airlines that were now defunct were diverse and ranged from a number that hardly began operations to others that were relatively successful, but merged or were taken over. Most of these airlines operated for a period and then went into bankruptcy. Some, such as Go Fly and BuzzAway, merged with successful low-cost airlines. In a few cases, the airline was registered, but never offered actual services. (Source: Low Cost Airlines: A Failed Business Model by Kenneth Button, page 208) 

In Australia after de-regulation of the domestic airline industry in 1990, there have been a number of attempts at entry by low cost airlines. However, they lived for limited periods and the major reason for shutting shop was liquidity crunch and cash flow problems. Typically, they have been independent operations, with no strong links to either financial institutions or other airlines. (Source: Low Cost Carriers in Australia: Experiences and Impacts by Peter Forsyth , page 2) 

It is clear from the above that globally low cost carriers have struggled to stay afloat. Out of the numerous entrants, only a handful survived. The story in India has been no different. Post the liberalization in 1991, the Maharaja had its first taste of competition, when a string of airlines entered the domestic fray. Damania, East West, Jet, Modiluft, NEPC, Sahara all made flamboyant entries. I still remember collecting the flashy monthly magazines whenever my father would fly these airlines. However, apart from Jet and Sahara, none of them survived.
 

Coming back to Spicejet, a comparison with its peers, Indigo and GoAir, is imperative. Indigo had a focused policy and approach from the beginning. Some notable steps include investing in new aircraft (replacing old ones), maintaining an unbeatable ‘on time’ record and launching an innovative PR exercise (remember their TV commercial?). Indigo did its best to connect with flyers, retaining existing ones and equally wooing newer customers. Slowly its market share grew and currently it is ranked at the top. Once it sensed increase in volumes, it introduced pricing mechanism such as cost for pre-booked seats (Spicejet had introduced this earlier, but somehow, it weaned away passengers since Indigo did not charge for this), a few seats for a premium cost and on-board sales of retail products. GoAir, on the other hand, has had a slow but steady growth, focus being on profitability and gradual increase of the network.

 

Spicejet did not heed the various indicators of trouble that was brewing. When it was incurring quarterly losses in the last financial year, its management should have taken cues and commenced steps to bring it back to black. Instead they continued to only announce spot sales on its existing network. Initially it did help with its website crashing and counter overflowing. However, competition being stiff, other airlines including the full service carriers provided matching discounts. This somewhat made the entire effort look like a desperate attempt to remain afloat. Another possible indicator was Spicejet COO’s communication, be it repeatedly taking potshots at AirAsia India’s fare pricing strategies terming it unviable or internal emails comparing how his airline had better filled up seats. Spicejet’s auditors, SR Batliboi and Associates LLP, had pointed out in their quarterly review report the airline's total liabilities exceeded its total assets by Rs 1,145.58 crore (Rs 1.15 trillion) as on June 30, 2014 and warned "These conditions, along with other matters...indicate the existence of a material uncertainty that may cast doubt about the company's ability to continue as a going concern," in August A week later Spicejet announced its offer of a new range of enhanced food and beverage menu titled, ‘Hot Meals, Warm Smiles’, together with preference to passenger who pre-book meals. Although the press release mentioned that it was done to reduce costs, it is anybody’s guess that catering to a new menu is hardly a cost reducing factor, compared to other steps like reducing routes and operational costs, a step which it was forced to take just 4 months down the line.

The Government seemed to be a silent spectator to this catastrophe, till it was too late. The Ministry of Civil Aviation which has taken airlines to task for being unfair to passengers chose to take action only in December 2014. It may be argued that it would amount to interference in a non-Government entity. But Spicejet is a listed entity and deals with the public and it has responsibility towards its shareholders. Its financial figures are disclosed. With global instances of such bankruptcy not uncommon or unknown, some action by the Government and Directorate General of Civil Aviation (DGCA) earlier in the year could have prevented the misery and possibly revived the beleaguered airline and more importantly its passengers before its fall.

 

The downfall of Spicejet has been a dampener in the December year-end holiday season. Fares suddenly peaked at the expense of confused passengers, who were the ultimate losers. Spicejet passengers with confirmed tickets were panic-stricken when reports of the Government’s sanction begun to surface. There is some hope in 2015, though, with Vistara commencing operations. AirAsia India has already commenced flights and is expected to scale up its operations this year. While Spicejet’s ownership has changed hands again and Ajay Singh is back in the helm, we can only pray that its revival plans turn successful in the coming months. The vacuum created by Spicejet leaves sufficient room for the new kids on the block to get a head start and the old hands to make further inroads (or rather ‘inskies’!).

 

Warren Buffet who was once bitten twice shy by the airline industry famously said “Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down”. 

 

Fly The Dream — An Experience Like No Other

You have to dream before your dreams can come true - A. P. J. Abdul Kalam

And my my, what a way for a dream to come true!

In today’s time starved and cost conscious consumer’s mind is always to ensure low cost at less time. This being the mantra to do most things including planning a travel. I too seemed to have fallen into the same pattern. While planning for a flight travel it was always the low cost carriers with a preference for the one promising and mostly providing ‘on time’ performance. The pleasure of travelling in a full service aircraft was no more in the horizon. That was until I discovered the advantages of early planning.

Air India was offering a very competitive fare on purchases of more than 90 days in advance. There was only a marginal higher difference in the lowest fare with that of the so called most popular LCC. Even in discussions with colleagues and friends, I was discouraged by most from opting for Air India, considering the unpredictable behavior of its management and staff. However inspite of the odds I decided in favour of a full service experience, after many many years. The timing of the flight suited me the most and was an added factor in favour of my choice.

On the day of the travel last month, we reached the swanky new terminal of the Netaji Subhash Chandra Bose International Airport at Kolkata fairly early. There was a tinge of sadness since we were going back to our ‘worktown’ after more than a week of holiday in our hometown. Both our families had come to see us off and we lingered on as long as we could…it is never enough to say goodbye. With a heavy heart we bid adieu and unwillingly went through the security check to boarding gate no. 16. This gate, though usually used for international departures, was opened for domestic flights having connecting international destinations. We walked down the aerobridge and entered the aircraft.

From the moment that I stepped in, I could sense the newness in the aircraft. It was a 3-3-3 seating arrangement. We put our hand baggage in the large curved overhead cabin and took our seats in row 12. The individual in-flight display screens were a welcome change from the LCCs. Even the seats seemed more spacious and had a cushion for added comfort. There was also generous legroom, another helpful feature for a tall person. I took a look around. The interiors had an orange hue. The carpets were spotless. A sweet smell wafted in the air.

We were settling in while the usual automated announcements were being made. We generally tend to ignore these considering them to be customary. They were being made in Hindi followed by English. In the midst of arranging a few necessities for my son, I heard snatches of the low volume announcements. Just then, I literally froze for a second trying to grasp what I had heard. Being in complete disbelief, I quickly sat down and pricked up my ears for the English version…but this time it was unmistakable… “welcome on board the Dreamliner 787….”. It took a few more seconds for the feeling to sink in…yes I was on the world's latest and most advanced aircraft in the sky.  

The grin on my countenance refused to subside for a long long time thereafter. Soon we were airborne. I switched on the screen before me with a removable panel below it and began enjoying the in-flight entertainment. The choices were varied and numerous. After going through the catalogue I selected “P.S. I Love You’, having a penchant for Hollywood! The crew commenced the usual in-flight services in due course. The meal had a good mix of Indian & continental items and tasted quite delicious.

After some time when we wanted to pull down the window shades, we were unable to find the cover lid. With the need to call the cabin crew, I habitually looked up to press the call button but there wasn’t any. I looked carefully and tried to press the panel around the reading light button, but nothing came off it. I then tried to switch off the light but that too had no button to press. Like my curious son, I made repeated attempts without success. I tried to look around quite naively to see if anyone else was doing something similar, but no one seemed to be hassled as I was. Since most of the services were complete, no crew member was within sight. After holding on for quite a long time (when I say this, it was indeed a long time), very unusual compared to any other airline, I managed to get the attention of a passing steward. He solved the mystery in a jiffy…the removable panel to navigate the screen doubled up as the remote control…in other words everything was remote controlled at the touch of your fingers without you requiring to move an inch from your seat!! And there are no window shades, only shade controls below it which regulates lighter or darker shades!!!

A similar ordeal awaited me when I used the washroom…I could not find the flush! The washroom had more room and was very sophisticated with many facilities like a panel to lay a baby for change of diapers. However, my feeble attempt with the various panels and button like devices did not elicit any favourable response. Looking very foolish I came out and stood at the door, trying to find the crew, but alas! no one was around. Other passengers wanting to use the washroom looked annoyingly at me and after waiting for quite a bit, tried their luck elsewhere. At last an airhostess did turn up to explain that there is no need to touch anything when flushing the toilet - Dreamliner’s revolutionary hands-free toilet seat. Just wave your hand in front of the infrared sensor and the toilet seat and lid closes automatically before the toilet flushes!

The remaining journey was thankfully eventless and I continued with the movie. By the time we landed at T3 in New Delhi, I had flown in one of the best innovations of our time and it made an ordinary experience extraordinary.

The 2 hour 20 minute journey albeit some minor delay, ended too soon…just like a dream. We were the last passengers to deplane. I could feel the power of dreams and realized that their fulfillment makes life so meaningful!